How Much Is My House Worth? A Road Map To True Market Value

How Much Is My House Worth? A Road Map To True Market Value

How much is my house worth? Knowing what a property is really worth is extremely important to homeowners, buyers, and sellers. Because homeowners want to know if their house has appreciated or depreciated in value and where they stand with equity. While buyers want know the true market value to determine a realistic offer. Sellers want to know the same thing to determine how much they’ll accept. Just because your neighbor’s house is listed for $150,000 doesn’t mean it’s really worth that much. Furthermore, just because the house like yours down the street sold for $125,000 last year doesn’t mean yours will sell for that much this year.

How Much Is My House Worth

How Much Is My House Worth?

How Much Is My House Worth In Today’s Market

The basic problem in buying and selling real estate is deciding what it is worth. Experienced real estate professionals use a combination of experience and resources to accurately determine the market value of a home. Market value is the most probable price a property should bring in a sale occurring under normal market conditions.  It is based on actual sales of comparable properties. What a property is listed for is quite often not even near the price that it sells for. There are many websites that give estimates of the value of homes, but how reliable are they? That depends on if you want a ballpark price range or an actual appraisal worthy calculation.

Zillow’s Zestimate

Beside all the the obvious unzillowable factor’s that go into play, Zillow isn’t a bad place to start to get a general idea of a ballpark figure to start a conversation on how much is my house worth. Yet this shouldn’t be taken at face value. According to Zillow they determine their  Zestimate for a home based on a range of publicly available information, including sales of comparable houses in a neighborhood. But how accurate is this estimate? Especially when Zillow’s collected data does not reflect recent changes or improvements to the property. When asked about the accuracy of Zillow’s Zestimate in an interview, Zillow CEO Spencer Rascoff said they’re “a good starting point” but that nationwide …”Zestimates have a median error rate of about 8%”. But this has improved over time. So what does it all mean?

In his book Wholesaling Real Estate: A Beginner’s Guide, Brent Driscoll elaborates even further. Referring to Zillow’s very own Zestimate data accuracy report, he said “they have a median error rate of 6.9%, stating further down in the report that only 38% of the time are they within 5% of the actual sales price. In reality this means they are 20% off the actual sales price 84.7% of the time”. (Update: Zillow’s median error rate has been improved from 8% to 6%). Consequently until that error rate hopefully reaches 1% take it with a grain of salt.

Realtor.Com – From The Horse’s Mouth

Unless you have a close friend or family member that’s a real estate agent with access to the MLS (multiple listing service) who’ll run comps for you, you must explore other alternatives. The next best thing to the MLS is Realtor.Com. A site run be REALTORS. It’s widely believed by professionals in real estate to contain the most updated and accurate data. However this is not to be taken as a replacement for Zillow, but more like a second opinion. Like an Iron Chef in a kitchen pantry, sure you can slice tomatoes with a butter-knife. But why not grab the Ginsu. And sure you can spread butter on toast with a Ginsu. But why not use a butter-knife. Each situation calls for the appropriate tool.

From an investor’s perspective, in researching comparable properties my first choice would be the MLS. My second would be Realtor.com or even local brokerage websites. But as a homeowner just to get a negotiation started I’d use Zillow.

So How Much Is My House Really Worth?

Although Realtor.com can give you more accurate data there is yet another way to find out how much your house is worth. If you don’t know any agents and don’t want to shell out the dough to hire an appraiser, you can always go to your local register of deeds online or in person to verify the sold price and sales date of comparable properties that are similar to yours, in close proximity, and sold within the last 6 months. It’s more or less a somewhat watered down version of a real estate agent running comps. A bootleg sales comparison approach so to speak. 😉

If It Ain’t Broke – You Know The Rest

First of all in the sales comparison approach an appraiser basically compares the property being appraised – the subject property – to recent sales of similar properties in close proximity called comparables or comps. Theoretically the value of the subject property is directly related to the sales price of the comps. This is how they determine market value. Similarity between the properties is very important. Adjustments are made to the sales price of a comparable property by adding the value of the features present in the subject property but not in the comparable property (such as a garage, deck, or finished basement). And subtracting the value of features present in the comparable property but not in the subject property. In this way they can compare apples to apples instead of apples to oranges, pineapples and grapes. Having a knowledge of the appraisal process gives an added advantage to the online tools available.

Road Map:

  • Zillow.com is a good place to get a ballpark figure and get the conversation going. It is less accurate but it’s Zestimate can be used as a starting point to determine a property’s value (as well as a negotiation tool). They also pull from a variety of different sources and have a make-me-move feature for homes that are not yet on the market but will take your best offer.

  • Realtor.com get’s it’s data directly from the MLS and is said to be more accurate and reliable. It’s the next best thing to the MLS itself giving you the most optimized search experience of active listings.

Summery

Ultimately, your house’s worth is defined by the market value of recent comparable properties sold. Not listed. Houses sold should be similar to yours in square feet, features, age, and condition. They should be in close proximity to yours, and sold within the last six months. This will give you a more accurate depiction of the value of your home. As long as you keep that in mind there is nothing wrong with using both of the sites previously mentioned as tools. But if you’d like to see the value of your home through the eye’s of an appraiser I highly recommend you pick up a copy of The Art Of Real Estate Appraisal by William L. Ventolo, Jr. It gives you the confidence to use any online tool and make a well informed decision. The next best thing to that is to ask an appraiser or real estate agent.

And remember. The True Market Value of comparable properties recently SOLD ultimately dictates what someone is willing to PAY. And at the end of the day, THAT is what your house is worth. (Tweet This)

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